Why Mortgage Assignment / Subject to Financing is Bad News, Deceptive and Dangerous
By Duncan Wierman on Feb 21, 2011 in In the News
Mortgage Assignment/Subject to Financing is another sub-prime disaster waiting to happen!
Mortgage Assignment/Subject to Financing Investing methods have the National Association of Realtors (NARS), the Mortgage Compliance and Service Industry and various banks across the country up in arms. There is not any regard to any professional underwriting and it's a violation of the SAFE Act!
Real Estate Investors using Mortgage Assignment/Subject to Financing investing methods are becoming more similar to what the banks did by using shady sub-prime lending practices.
Mortgage Assignment/Subject to Financing Investors are giving access to "want to be" home buyers who cannot get a traditional loan. These poor quality buyers are being put into a transaction that is ALREADY BAD by simply allowing them to take over the poor quality mortgages of another home owner in distress ILLEGALLY! Come on... THINK, if these buyers were of good quality they could get a traditional mortgage. The new buyers / borrower's ability to repay the loan is questionable based on a number of criteria. They types of buyers being put into these transactions are the same low standard what a sub-prime borrower was.
Mortgage Assignment/Subject to Financing Buyers have a:
o FICO Score of 660 or less.
o Late payments to any creditor within the last 12-24 months.
o Collection accounts.
o Any repossessions within the last 5-7 years.
o Bankruptcy within the last 7 years.
Otherwise they could get a loan. Are these the type of people you want to place in homes?
Promoters of Mortgage Assignment/Subject to Financing methods claim the way around this issue is to simply get the seller to sign a CYA (cover your ass) letter to disclose the practice. Just because you have a signed "cover your ass" disclaimer does not make this method legal! This letter is NOT a normal letter in any other real estate transaction making it complex, shady and underhanded method to keep it secret.
Sub-prime lenders have run into a lot of financial trouble making loans to unqualified buyers. The default rate on these type of loans is at an all time high and people are losing their homes at an alarming rate. Several large lenders that specialized in loans to questionable borrowers have filed for bankruptcy. This is why the news is full of stories about the sub-prime mortgage crisis. What makes a real estate investor think that by using Mortgage Assignment/Subject to Financing methods that they are not going to be held accountable when it goes bad?
The US sub-prime mortgage crisis was one of the first indicators of the 2007–2010 financial crisis, characterized by a rise in sub-prime mortgage delinquencies and foreclosures. Approximately 80% of U.S. mortgages issued to sub-prime borrowers were adjustable-rate mortgages. After U.S. house sales prices peaked in mid-2006 and began their steep decline forthwith, refinancing became more difficult. As adjustable-rate mortgages began to reset at higher interest rates, mortgage delinquencies soared.
Now.... some so called real estate gurus says Mortgage Assignment/Subject to Financing is the answer???
You got to be kidding me! They say that their attorneys said they are legal, BUT they still tell you NOT to send the bank the letter and confirm what you have done!
In my opinion these info marketers are unscrupulousness and are only trying to make a buck. I can assure you that doing Mortgage Assignment/Subject to Financing deals are going to come back and Bite YOU just like the sub-prime industry loans.
http://www.subprimelendingcrisis.com/Subprime_Lending_Lawsuits.php
Stay aware from Mortgage Assignment/Subject to Financing Methods!
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February 23rd, 2011 at 9:21 am
Why Investor Using Mortgage Assignments are Illegal under the SAFE act
As a standard disclaimer, the following is not legal advice.
The federal Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act of 2008 (SAFE Act). is the federal government’s minimum threshold of rights and protections.
How does this impact you….
The act establishes minimum requirements for obtaining a mortgage loan originator license, the process for obtaining such a license, who must obtain a license, and penalties for originating loans without a license. The act specifically applies to residential mortgage loan originators.
Under the act, a residential mortgage loan originator (RMLO) is any individual who takes a mortgage loan application, or offers or negotiates the terms of a residential mortgage loan. There are several exceptions to the definition of an RMLO, but the two most relevant to our clients are:
* People who perform only administrative or clerical tasks for a licensed RMLO.
* A real estate broker or agent, unless he is compensated by a lender, mortgage broker, or other RMLO, or their agent.
A residential loan is a loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other security interest in a dwelling or residential real estate.
A dwelling has the same meaning as defined in the Truth in Lending Act, which is a residential structure or mobile home containing one to four family housing units, or individual units of condominiums or cooperatives. Residential real estate means real property on which a dwelling is – or is intended to be – constructed.
There are only a few classes of people exempt from having to be licensed when originating a residential mortgage loan.
They are:
• A registered mortgage loan originator, meaning someone who is an RMLO and an employee of a depository institution, a subsidiary thereof that is regulated by a federal banking agency, or an institution regulated by the Farm Credit Administration.
• An individual who offers or negotiates terms of a residential mortgage loan with or on behalf of an immediate family member of the individual
• A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney’s representation of the client, unless the attorney does both of the following two things: (a) The attorney takes a residential mortgage loan application, and (b) offers or negotiates the terms of a residential mortgage loan.
• An exclusive agent of a registered financial services company who is individually enrolled as a registered mortgage loan originator with the Nationwide Mortgage Licensing System and Registry.
• Someone who offers or negotiates terms of a residential mortgage of his own homestead property.
• A non-profit organization providing self-help housing that originates zero-interest residential mortgage loans for borrowers who provide sweat equity to construct the dwelling securing the loan.
Becoming licensed as a RMLO requires classroom work and passing an exam. Some states also conduct a background check.
The penalties for originating a residential mortgage loan application without a license are severe.
The agency is authorized to:
* Deny, suspend, revoke, condition, or decline to renew a license.
* Order restitution.
* Impose an administrative fine up to $25,000.
* Issue cease-and-desist orders, as well as immediate temporary orders if necessary.
The impact of owner-finance deals is significant. The definitions of residential loan, residential real estate, and RMLO are broad and extensive.
We are hard-pressed to imagine a scenario where the seller in an owner-finance deal would not discuss the terms of the loan with the buyer. Therefore, makes it practically impossible for investors who routinely enter into owner-finance transactions to do so without being licensed.
The net impact of SAFE is that almost all owner-finance sellers will have to use an RMLO to originate loans unless they fall into one of the extremely narrow exemptions. Unless any such seller is originating a loan for an immediate family member (defined as a spouse, child, sibling, parent, grandparent, or grandchild) or owner-financing the sale of their own homestead property, the seller will have to outsource the loan application to a registered RMLO.
February 25th, 2011 at 12:07 pm
I got an email that said there is a “loophole” …
The argument is that if you put the house under contract you have the legal right to sell it .. so its not a violation of the SAFE act..
BUT
the response to that angle is.. okay, you may get away doing a few of these deals, but don’t you think then that Realtors and mortgage industry professionals are going to start looking at you as CIRCUMVENTING the licensing requirements in your state..?? You are basically acting as an agent or broker !!